Dueling tax measures raise stakes for schools, state

With the stakes this high, Gov. Jerry Brown had wanted to keep things simple.

When he first set out to persuade voters to raise taxes, Brown had hoped to paint the November election as an easy choice between stability and uncertainty, a choice between school funding and school cuts. Sure, he'd have to overcome the voters' anti-tax bias, but Brown was banking on the simplicity of his message to hold sway:

California faces a chronic deficit. The state needs more money. Without it, schools will suffer.

It would be basic, clean. But civil-rights attorney Molly Munger soiled that strategy when she refused to shelve a tax initiative of her own. Now, she and the governor are locked in an awkward, three-way battle with anti-tax forces like the Howard Jarvis Taxpayers Association.

For California, nothing on the Nov. 6 ballot is bigger or more important than the outcome of this confused political contest. It holds in the balance the fate of millions of people, billions of dollars and, if you believe the governor, the very future of our state.

Brown's measure is Proposition 30, which temporarily would increase the state sales tax a quarter cent as well as raise personal income taxes for those earning more than $250,000. Munger's proposal is Proposition 38, which would raise the personal income tax on most Californians for 12 years.

Both plans are marketed as windfalls for the schools, although money generated by Prop. 38 would also go toward debt payments and programs serving children ages 5 and younger. Prop. 30 would also help balance the budget. Anti-tax groups have labeled both "job killers" that just throw money at a wasteful Sacramento bureaucracy.

Polls indicate that the governor's measure has a better chance than Munger's, but it will be tight. Analysts and observers say the presence of Munger's initiative may ultimately doom the governor's measure or both measures.

"Voters may see themselves as surrounded by tax measures," said Jack Pitney, a government professor at Claremont McKenna College, "and they might get their backs up and vote no."

The state budget passed by the Legislature in June assumes that voters will approve Prop. 30. If they don't, the budget calls for state spending to be automatically cut by $6 billion, with schools facing the vast majority of the reductions. Opponents say that's extortion, a cynical ploy to frighten voters into supporting the measure. The governor and his supporters say it's just logical, given the size of California's education budget.

The governor's measure would raise the state sales tax for four years, from Jan. 1, 2013, to the end of 2016. Sales tax rates vary from city to city and county to county across the state, but if Prop. 30 is approved, the average sales tax rate in California would be 8.37 percent. Everyone in California would be affected.

Prop. 30 also would raise the personal income tax rate on upper-income earners for seven years, from 2012 through 2018. It affects only individual tax filers who earn more than $250,000 annually, joint filers who earn more than $500,000 and head-of-household filers who earn more than $340,000.

Combined, the two tax increases would raise for the state a projected $6 billion annually from fiscal years 2012-13 to 2016-17. The state would also see some additional revenues for fiscal years 2017-18 and 2018-19 as the higher tax rates are phased out.

The nonpartisan Legislative Analyst's Office warns, however, that the revenues "could be subject to multibillion-dollar swings" because most of the new money would come from the personal income tax on high-income taxpayers. Their earnings are often tied to investments and businesses, which are volatile.

The $6 billion in new annual revenue would fund additional education spending with the remainder of the money going toward balancing the budget. The governor says the measure is necessary to end the state's chronic budget problems. He's made Prop. 30's passage his No. 1 priority for the year.

"We've made progress, but we still have very serious budget problems in California," the governor says in a promotional video for Prop. 30. "We simply have to take a stand against further budget cuts for schools or for our public safety."

Prop. 38 also would add more revenue to school funding, but it seeks to achieve the increase through the personal income tax alone. Munger's initiative would generate a projected $10 billion annually through an increase in the state's marginal tax rates. All but the state's poorest residents would be affected by the tax increase, which would be in effect from 2013 to 2024.

The Legislative Analyst's Office warns that revenue from this tax also could swing wildly because it too relies heavily on the state's wealthiest taxpayers.

One primary difference between the measures is that money generated by Prop. 30 would flow to Sacramento and then be allocated to schools, while money generated by Prop. 38 would flow directly to the schools, on top of their current funding levels.

Prop. 38 is backed by the California State PTA, the California School Boards Association and school districts in Los Angeles, San Diego and San Francisco, among others, but its campaign is funded primarily by Munger, who is the daughter of billionaire investor Charles Munger, the vice chairman of Berkshire Hathaway.

Molly Munger views "public education as a civil-rights issue," said Nathan Ballard, spokesman for the Yes on 38 campaign. He said the measure came about as a collaboration between the state PTA and Munger's nonprofit, the Advancement Project, which, among other things, seeks to expand educational opportunities for poor children.

If voters approve both propositions, the one with the most votes will go into effect. But anti-tax groups hope that won't happen. Jon Coupal, president of the Howard Jarvis Taxpayers Association, said he's optimistic both measures will fail, given the voters' history and recent controversies involving waste and fraud in Sacramento.

"California voters have rejected the last eight statewide tax-increase proposals," he said. "I think, at the end of the day, we beat those" proposals.

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